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Revenues to rise 11-13% for December quarter; sugar, tyre, airlines to see benefit

Falling commodity prices will slightly improve profit margins, while overall revenue in Indian corporate sector is likely to have increased 11-13% in the last three months of 2012, Crisil Research said.

Crisil’s forecast is neither too gloomy, nor too rosy, as it points to strong volume growth only in 11 out of 28 key sectors of the industry. India’s economy has been decelerating of late, though it is in much better shape than many others in the West, where growth is in single digits or negative.

Volume growth is estimated to be muted in Q3 FY13 with 17 out of 28 key sectors (excluding banks and oil & gas companies) expected to witness negative or low single digit growth due to continued macro-economic pressure, it said.

Investment-linked sectors such as capital goods, steel and cement would witness volume pressure due execution delays mainly in the power, construction and infrastructure sectors, it said. Despite muted volume growth, we estimate EBITDA margins to improve marginally in Q3 FY13, it forecast.

Sectors that saw lower demand would include two-wheelers, retail, textiles and housing. Fall in both corporate and leisure travel will affect hotels and airlines.

“Slower volume growth is likely to constrain revenue expansion, mainly in sectors such as automobiles, FMCG, capital goods and metals. On the other hand, EBITDA margins will be supported by increasing realisations and softening prices of commodities such as coal, rubber and cotton.”

Profit increase will be seen in segments like sugar, tyre cement and airlines. These sectors would witness over 250 basis point expansion in EBITDA (operating) margins due to higher realisations, it said.

Lower input costs would result in higher margins for power generation, textiles and tyre sectors. Margins of export-oriented sectors, which have seen sharp y-o-y expansion in H1 FY13 due to rupee depreciation, are likely to be under pressure with forex benefit waning off in Q3 FY13, it said.

Among the sectors that will see lower profits for the last quarter are hotels and shipping sectors, hit by over capacity, while high input costs will drag profitability in paper and petrochemicals.

We believe that margin expansion only on the back of increase in realisations, rupee depreciation and cost control is not sustainable and increase in volume growth will be necessary for improvement in profitability, Crisil said.

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